Does The Taxman Cometh To Albany?

Dan Janison, who is doing a quite able job of filling in at Newsday’s Capitol Bureau, has a great scoop today about an IRS letter to lawmakers warning that there may be “a misinterpretation” about how they may deduct per diem payments as a business expense.

An excerpt from the Spin Cyle blog:

An IRS memo released Feb. 2, accompanying the letter to legislators here and in other states, signals a crackdown. The memo says the legislature is “in session” only when it is “sitting in an organized capacity for the transaction of legislative business and is capable of conducting legislative business.” (Attending committee meetings also triggers the tax deduction.)

Of deeper concern to nervous legislators is that the IRS is not just talking about future filings but previous ones, spurring a flurry of phone calls by Assembly members and senators to their accountants. Specifically, the letter states that the IRS has proposed a “compliance program” in which filers review their 2004 and 2005 federal income tax returns “for the proper reporting of business expenses.”

“People are trying to figure out what to do,” said a veteran legislator who spoke under condition of anonymity, as did several colleagues. “It could be a matter of thousands of dollars if you’re affected.”

The IRS is providing legislators with the “opportunity” to correct any errors now without incurring any penalties, and also warning that failure to do so could result in an “examination.”